Feb

The importance of timing & planning for dilapidations

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Commercial Property:

Dilapidations – a question of timing, and seeking the right advice at the right time can reap rewards for both landlords and tenants and maximise the ability of the parties involved to seek or defend against damages for alleged breaches.

A lease is used in most instances to formalise the agreement between landlord and tenant, the content of which will have implications for both parties throughout the term of the lease and at lease end. It is therefore of critical importance that the context of the lease is clear and concise and represents the requirements of the parties.

A prospective tenant should therefore seek advice from an experienced building surveyor to assess condition prior to entering into any lease agreement to minimise risk and avert potential claims. This is particularly relevant in the current commercial climate, where the majority of leases are for shorter terms.

The condition of the premises at commencement of the lease can have significant bearing on dilapidations claims. It is a common misconception among tenants that they are not obliged to repair, maintain or replace building components or landlord’s fixtures that were in poor condition at the outset of their tenancy.

Equally, the context of a Full Repair and Insuring lease does not imply a new for old policy and a tenant is not obliged to go beyond the standard of repair identified in the lease.

The wording of lease clauses and their inherent meaning can be complex. An experienced surveyor will be able recognise the merits and deficiencies of a lease and put this in context for their respective clients.

Most commercial leases will prescriptively identify the standard of repair within the repairing covenant of the lease. In most instances, this will place a burden on the tenant to “put the premises into repair or keep in repair”.

Broadly speaking, even if the demised premises are in poor repair at commencement this is not the standard to be maintained. Rather, the tenant is further obliged to maintain to a prescribed standard – often “good and substantial or good and tenantable condition, irrespective of the cause of damage”. The latter removes the landlord’s obligations to repair.

The standard of repair can be varied within the lease by a Schedule of Condition, most often in favour of the tenant, often requiring the tenant to return the premises in “no better or no worse condition” than evidenced in the schedule of condition.

It is therefore equally important where a schedule of condition is annexed that it is accurately reflective of the condition on the date of the inspection and identifies the whole of the demised premises.

Tenants should be aware that where alterations or additions are made to the demised premises these will be subject to the same repairing obligations as that of the existing premises. Alterations are subject in most instances to specific direction at the end of the term to either retain or remove. Tenant fixtures and landlord fixtures are, in most cases, treated differently at the end of a lease and can have a bearing on the claim.

The expertise of a chartered building surveyor can be invaluable to both landlords and tenants where claims arise, particularly at the end of the lease term.

A landlord’s surveyor should endeavour to identify breaches and take cognisance of alterations to the property and prescribe the remedy required to resolve each breach. An estimate of cost should also be provided in order to establish the value of the claim.

An experienced building surveyor will have the ability to strategically assess the most viable options for the landlord to minimise future risk once the premises reverts, while ensuring the landlord receives “best value” from the outgoing tenant.

By equal measure, a tenant-appointed surveyor will be able to consider the merits of the landlord’s claim and minimise exposure for the client. In some instances, this may go beyond simply negotiating the claim line by line and an element of commercial awareness can go a long way to reaching a favourable settlement.

The best time to appoint a building surveyor? As soon as possible. Once appointed the surveyor will be able to make an assessment of the type of service required and provide strategic advice to the client.

This advice can be invaluable in minimising risk prior to the commencement of a lease for landlord and tenant alike. At lease end, the appointment of a chartered building surveyor can be the difference between a good and bad outcome for the client.

By Kenny McDonald

Kenny McDonald is an associate in Building Surveying Consultancy in the Glasgow North office of DM Hall Chartered Surveyors.

https://www.dmhall.co.uk

Facebook: https://www.facebook.com/DM-Hall-Chartered-Surveyors-LLP-168316039915372/